If your Volkswagen or BMW threatens America, what are you for buying it? You are also a threat and must be stopped, or at least made to pay more. The president says he wants tariffs as high as 25% on imported vehicles and parts.

Does that sound ridiculous? It should, because the whole idea is bananas. But so are steel and aluminum tariffs on US allies (not enemies), which Trump also justified on national security grounds. They are in effect right now.

So, don’t dismiss this automotive tariff idea as more crazy rhetoric. It’s probably going to happen, and it will hurt the US more than it helps.

Photo: Getty Images

Bypassing Congress

Why is the president using this phony, made-up national security threat to get tariffs?

Simple: It lets him bypass a Congress that, while generally supine to his wishes, might stop this one. It will cost their donors money.

Under the Constitution, all power to regulate trade lies with Congress, not the president. He is involved only because past Congresses delegated some of their authority. That was fine until we elected Trump, who, given one inch, will take 10 miles.

I explained this a few months ago in Steel Yourself for Metallic Trade War. Section 232 of the 1962 Trade Expansion Act empowers the president to address trade-driven national security threats by imposing tariffs.

It also says he can do this only after the Commerce Department certifies such a threat actually exists… which it did, for steel and aluminum. Now, at Trump’s request, it is “investigating” to see if imported cars and trucks are similarly threatening.

I think the investigation is already over. They are just going through the motions to justify a decision Trump already made.

Does that mean the decision is wrong? Not necessarily.

But if it’s such a great idea, you’d think the industry he seeks to protect would agree. In fact, American vehicle makers hate this plan.

Protection Nobody Wants

The auto industry’s trade groups have launched a public campaign against President Trump’s attempt to “help” them. You can read their open letter to him here. A short excerpt:

While we understand that you are working to achieve a level playing field for trade to create more jobs, raising tariffs is the wrong approach.

We have come together as a united U.S. auto industry—domestic and international automobile manufacturers, suppliers, dealers and auto care businesses—to urge your Administration to achieve fair trade through policies that won't jeopardize American jobs, our economy or U.S. technological leadership.

Raising tariffs on autos and auto parts would be a massive tax on consumers who buy or service their vehicles — whether imported or domestically produced. These higher costs will inevitably lead to declining sales and the loss of American jobs, as well as increasing vehicle service and repair costs that may result in consumers delaying critical vehicle maintenance.

Mr. President, we are engaged in a high-stakes global race to drive the next generation of cutting-edge vehicle technologies. Higher auto tariffs will leave less capital for investments in innovations and less competition to promote creative and beneficial technologies. At this pivotal and transformative moment for mobility, misguided U.S. policies affecting advanced vehicle technologies will be damaging to America's auto sector.

Much of Congress (though not a majority) agrees. A bipartisan group of 149 House members have urged the president not to do this.

So who does like the idea? Auto-sector labor unions are sympathetic, but even they haven’t endorsed tariffs. They prefer other protective actions.

Photo: Getty Images

Taking Threats Seriously

This week, European Commission President Jean-Claude Juncker visits Trump at the White House, and they will no doubt discuss auto tariffs.

If Trump does what he’s threatened, German exports could fall sharply and trigger a financial crisis that won’t stay in Europe. It will shoot around the globe and hurt the US as well.

The damage is already happening. The auto industry and its suppliers have to take the president’s threats seriously. They are already planning how to survive tariffs.

That diverts time and resources away from what these companies should do: beat foreign competitors by building better products, more efficiently, to sell at lower prices. Then more people will buy them, creating more and better-paying American jobs.

But no. The US auto sector must instead deal with nutty ideas like tariffs, imposed under false national security pretenses and probably ulterior motives. It’s the same kind of distracting “witch hunt” Trump calls the Mueller investigation.

Killing Growth

Last year’s tax cut was supposed to stimulate economic growth, create new jobs, and help workers earn more money. I doubt it will accomplish any of those things.

But even if it does, a trade war will do the opposite, leaving the US economy right where it was: in a debt-driven, slow-growth, low-pay recovery. And that’s the best-case scenario.

The worst case is much worse indeed… and we may see what it looks like soon.

Senior Economic Analyst Patrick Watson is a master in connecting the dots and finding out where budding trends are leading. Patrick has partnered with John Mauldin as the co-editor of Mauldin Economics’ premium research service, Over My Shoulder. Together, they curate research and analysis from the world’s finest thinkers, and deliver it to subscribers 3–4 times per week. You can also follow him on Twitter (@PatrickW) to see his commentary on current events.

Discuss This

Comments

Use of this content, the Mauldin Economics website, and related sites and applications is provided under the Mauldin Economics Terms & Conditions of Use.

Unauthorized Disclosure Prohibited

The information provided in this publication is private, privileged, and confidential information, licensed for your sole individual use as a subscriber. Mauldin Economics reserves all rights to the content of this publication and related materials. Forwarding, copying, disseminating, or distributing this report in whole or in part, including substantial quotation of any portion the publication or any release of specific investment recommendations, is strictly prohibited.
Participation in such activity is grounds for immediate termination of all subscriptions of registered subscribers deemed to be involved at Mauldin Economics’ sole discretion, may violate the copyright laws of the United States, and may subject the violator to legal prosecution. Mauldin Economics reserves the right to monitor the use of this publication without disclosure by any electronic means it deems necessary and may change those means without notice at any time. If you have received this publication and are not the intended subscriber, please contact service@mauldineconomics.com.

Disclaimers

The Mauldin Economics website, Thoughts from the Frontline, The Weekly Profit, The 10th Man, Connecting the Dots, Transformational Technology Digest, Over My Shoulder, Yield Shark, Transformational Technology Alert, Rational Bear, Street Freak, ETF 20/20, In the Money, and Mauldin Economics VIP are published by Mauldin Economics, LLC Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated and there is no obligation to update any such information. You are advised to discuss with your financial advisers your investment options and whether any investment is suitable for your specific needs prior to making any investments.
John Mauldin, Mauldin Economics, LLC and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. Corporate policies are in effect that attempt to avoid potential conflicts of interest and resolve conflicts of interest that do arise in a timely fashion.
Mauldin Economics, LLC reserves the right to cancel any subscription at any time, and if it does so it will promptly refund to the subscriber the amount of the subscription payment previously received relating to the remaining subscription period. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Mauldin Economics publication or website, any infringement or misappropriation of Mauldin Economics, LLC’s proprietary rights, or any other reason determined in the sole discretion of Mauldin Economics, LLC.

Affiliate Notice

Mauldin Economics has affiliate agreements in place that may include fee sharing. If you have a website or newsletter and would like to be considered for inclusion in the Mauldin Economics affiliate program, please go to http://affiliates.ggcpublishing.com/. Likewise, from time to time Mauldin Economics may engage in affiliate programs offered by other companies, though corporate policy firmly dictates that such agreements will have no influence on any product or service recommendations, nor alter the pricing that would otherwise be available in absence of such an agreement. As always, it is important that you do your own due diligence before transacting any business with any firm, for any product or service.